How the 1.1% Slump in the Dollar Buoyed Precious Metals
DXY fell 1.1%
The rise in precious metals on Tuesday, June 27, 2017, was also due to the slump in the US dollar. The US dollar index (or DXY), priced against a basket of six major world currencies, fell approximately 1.1% on Tuesday. The last five trading days have been bad for the index with it falling almost 1.4%. Gold and silver rose 0.26% and 1.0%, respectively, during that period.
The dollar hit its nine-month low against the euro after the ECB (European Central Bank) said it would begin reducing its emergency economic stimulus.
The fall in the US dollar makes dollar-denominated assets cheaper for investors in other countries. Thus the demand for the dollar and dollar-based assets rises as the dollar falls.
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The above graph shows the comparative price performance of gold and the DXY. We often see a close inverse relationship between the two since gold and other precious metals are all dollar-denominated assets. However, there are chances that the dollar and gold may move hand-in-hand during extreme risk conditions such as war. The US dollar and gold may both be considered safe-haven assets during extremely turbulent situations.